June 2008 State of California Economic Update The latest readings on real estate activity give reason for hope. Single-family home sales have been gradually trending up since October 2007. It is still uncertain how long it will take for this trend to translate into improvement in other factors, such as construction employment and consumer spending.
April yielded scant employment news as housing troubles continued to dominate labor market conditions. California’s nonfarm payroll employment was essentially unchanged, dropping only 800, while the nation as a whole lost 20,000 jobs. n Four of the state's 11 major industry sectors gained jobs in April, with the biggest gains coming in government, 5,400, and leisure and hospitality, 3,300. Government employment was boosted by an unusually large gain in federal government employment in the state and a gain in state government that was increased by Caltrans projects and seasonal activity in forestry (fire fighting) and state hospitals.
The remaining seven major industry sectors lost jobs. Construction lost 4,100 jobs; information, 3,400; manufacturing, 2,600; professional and business services, 1,400; trade, transportation, and utilities, 300; financial activities, 100; and other services, 100.
From April 2007 to April 2008, the state gained 23,400 nonfarm jobs—a mere 0.2-percent gain. And even this gain was largely due to the state having lost 39,300 jobs in April 2007.
Eight of the 11 major industry sectors gained jobs and three lost jobs over the 12-month period. The biggest gains came in educational and health services and government. Employment rose 54,800 in educational and health services; 48,200 in government; 31,000 in professional and business services; 19,800 in leisure and hospitality; 6,700 in other services; 800 in natural resources and mining; 600 in trade, transportation, and utilities; and 300 in information.
Most of the job losses were associated with slumping housing activity. Over the year, employment fell by 81,700 in construction; 36,200 in financial activities; and 20,900 in manufacturing.
The state's unemployment rate in April, 6.2 percent, was unchanged from March. Household employment grew by 53,300 and unemployment dropped 1,200. This unusually large employment gain, however, followed three consecutive month-over-month losses totaling nearly 47,000. A year ago, the state's unemployment rate was 5.2 percent.
Home building was again disappointing in April. The pace of residential permitting—73,500 units at a seasonally adjusted annual rate—recovered somewhat from an extremely weak level in March—52,800 units. New home permitting during the first four months of 2008 was down nearly 48 percent from the same months of 2007 and down 62 percent from the same period of 2006.
On the bright side, the pace of existing home sales in California perked up substantially in April—albeit from a very subdued level. Sales of existing single-family detached homes reached a seasonally adjusted annual rate of 366,720 units, a 15-percent increase from March. Moreover, home sales improved in five out of the six months ending with April. n This turnaround, though, coincides with a significant drop in home prices. The median price of existing single-family homes sold in April fell to $403,870, a 32-percent drop from a year earlier.
All of this activity had a positive impact on home inventories. The unsold inventory index—the number of months needed to deplete the supply of homes on the market at the current sales rate—dropped from a high of 16.8 months in January 2008 to 9.2 months in April 2008. The median number of days needed to sell an existing single-family home was 52.1 in April, much improved from the 71.6 days posted in January. Monthly Cash Report Preliminary General Fund agency cash for May was $34 million above the 2008-09 May Revision forecast of $5.561 billion. Including an adjustment for actual April personal income tax receipts that were not known when the May Revision forecast was being prepared, year-to-date revenues are $39 million above the $89.987 billion that was expected. Although May is a significant revenue month, June is more important, because estimated payments for personal income tax filers and calendar-year corporations are due mid-month. Nearly $10.5 billion is forecast for June.
Personal income tax revenues to the General Fund were $267 million above the month’s forecast of $2.38 billion. Withholding receipts were $38 million above the estimate of $2.584 billion and other receipts were $393 million over the projected level of $640 million. Refunds issued in May were $160 million more than the anticipated $801 million. Proposition 63 requires that 1.76 percent of total monthly personal income tax collections be transferred to the Mental Health Services Fund (MHSF). The amount transferred to the MHSF in May was $4 million above the estimate of $43 million. Year-to-date General Fund income tax revenues are $272 million above estimate.
Sales and use tax receipts were $300 million below the month’s forecast of $2.625 billion. May cash includes the remaining portion of the final payment for first quarter taxable sales, which was due April 30, as well as the first prepayment for second quarter sales.
Corporation tax revenues were $101 million below the month’s estimate of $250 million. Prepayments were $39 million below the forecast of $221 million and refunds were $68 million above the projected level of $78 million. Other payments came in $6 million above the estimate of $107 million. May is not a particularly large payment month for this tax.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $148 million above the month's forecast of $170 million. Receipts from the insurance tax alone were $147 million above $134 million expected for the month; it is expected that this gain will be offset by the lower insurance tax receipts in June. Pooled money interest income was $38 million over the estimate of $26 million. According to the State Controller’s Office, the May interest income cash total included a $36 million transfer for a prior misallocation to a special fund. Without this transfer, the pool money interest income would have been only $2 million above the month’s estimate. "Other" revenues were $18 million below the month's forecast of $110 million.